A British man has sued Interactive Brokers L.L.C. alleging the Greenwich-based company ignored obvious signs of a con man who stole between $10 million and $15 million over two years by setting up a mirror of an Interactive Brokers”™ securities platform.
Dennis Champion is seeking class-action status for his lawsuit, claiming more than 400 people were victimized in the alleged scam.
While Champion does not accuse Interactive Brokers of participating in the scheme, he is attempting to hold the company liable for negligence and breach of fiduciary duty, claiming the company made $4 million in commissions it should return.
The case relates to activities by Diego Mariano Rolando, an unregistered financial adviser who opened accounts with Interactive Brokers in his clients”™ names, then hid losses and pocketed proceeds by feeding customers phony account statements and juggling investments.
Champion claims Interactive Brokers recklessly disregarded communications from plaintiffs that should have alerted the company to the activities of Rolando and a sham company he called IATrading.com Inc., which listed an address at One Pickwick Plaza in Greenwich where Interactive Brokers is based.
Plaintiffs were told the companies”™ relationship was “confidential,” according to Champion, and referred back to Rolando.
Rolando allegedly stole money by maintaining mirror accounts on the IATrading.com Web site his clients could access, which he matched up with actual accounts at Interactive Brokers that he controlled. That setup allegedly allowed for the trading of hundreds of millions of dollars without client knowledge.
Whenever a client closed an account, Rolando is said to have paid phony capital gains by raiding other customers”™ accounts, which he was able to do under “friends and family” account rules at Interactive Brokers that allow unregistered financiers to control up to 15 accounts with an aggregate value of $25 million.
Those accounts also allowed Rolando to sidestep Interactive Brokers”™ rules against unregistered advisers controlling hundreds of accounts.
After discovering Rolando”™s activities last November, the company froze his accounts, with Champion claiming he has been denied access to $140,000 of his money. That occurred five months after the Commodities Futures Trading Commission (CFTC) sanctioned Interactive Brokers after a Canadian man stole $8 million, in what Champion said was a similar scheme to Rolando”™s.
In that case, CFTC ordered Interactive Brokers to pay back commissions it made on fraudulent trades, and to improve its oversight and compliance programs.
In response to a request for comment on what measures Interactive Brokers has taken to thwart such activities in its name, a spokesman forwarded a written statement from the company”™s legal department that the lawsuit is a “misplaced attempt” to hold Interactive Brokers liable.
“Interactive Brokers had no relationship whatsoever with ”˜IATrading.com”™ and was unaware of the existence of that website or of Mr. Rolando”™s fraudulent activities,” the company”™s attorneys stated. “Interactive Brokers is a pure online broker and does not employ or recommend financial advisors or provide financial advice of any kind … Indeed, Interactive Brokers was not the only U.S. firm to be victimized by Rolando. In addition to opening accounts at Interactive Brokers using forged documents, Mr. Rolando opened 38 accounts at other financial institutions as well.”
